Currency Updates:
We saw a lot of volatility overnight around the time of the Fed chairman’s testimony but the underlying USD strength remains unchallenged. There were huge flows in crosses like EUR/AUD and the market seems intent on continuing to sell the AUD; this is one trend which we are better off not fighting.
The main event on today’s economic calendar is the HSBC version of China’s manufacturing PMI whilst Australian inflation expectations should not be ignored.
TECHNICALS: The short-term bear trend has re-asserted itself (see chart) and we look certain now to test weekly lows at .9600. Previous lows at .9710 offer the first level of resistance and this gets heavier now near .9750/.9800.
CROSSES: EUR/AUD was the main mover in early European trade when one large global macro fund put through a massive buy order, driving the pair from 1.3200 to 1.3300. The daily close above previously important resistance gives this pair a very bullish look (see chart). AUD/NZD remains uninspiring as it trades sideways near 1.2000 but a significant break is inevitable (probably lower unless a base can form above 1.1950). AUD/JPY is still trading in a sideways wedge formation.
ORDERS & FLOWS: Most of the big flows were in the crosses and it seems that the big speculative players still have plenty of appetite to sell the AUD. As mentioned above, EUR/AUD was a big play overnight but hedge funds and CTAs were also seen selling AUD/USD when it broke below .9700.
INTRADAY CONCLUSION: Now that the Fed is behind us, the dominant market trend of USD strength can reassert itself. The AUD is the markets whipping boy along with the CHF, and further losses in AUD/USD are likely. Sell any intraday rallies towards .9750.
TRADE OF THE DAY: Yesterday’s trade idea of selling USD/JPY at 103.50 worked nicely, so why not book some profits and try the same trade again, but maybe look to sell now at 103.70. Risk-reward players are still finding value in buying AUD/NZD dips to 1.1960 with very tight stops below 1.1945.
